The credit rating of Joint Stock Commercial Bank "Interprombank" (hereinafter, the Bank) has been downgraded due to a deterioration of the liquidity position caused by a decrease in highly liquid assets. ACRA has lowered the Bank’s secondary business profile assessment based on a comparison with other banks with similar business profiles. The Negative outlook reflects ACRA’s opinion on the possible worsening of the quality of the Bank’s assets and reduced capital adequacy in the future.
The Bank is a medium-sized full service credit organization that operates primarily in Moscow and its suburbs. The Bank’s main function is lending to non-financial enterprises and individuals, as well as providing bank guarantees.
The Bank is owned by several groups of individuals and legal entities. Prior to July 2019, one of the key shareholders was D. P. Mazurov, the founder and president of New Stream Group. The largest block of shares is currently held by V. A. Ponamaryov (the group of shareholders he belongs to has a 26.29% stake), who exercises significant influence over the Bank’s operations.
The Bank ranked 84th in equity and 125th in assets among Russian banks as of September 1, 2019.
Key rating assessment factors
The business profile assessment reflects the Bank’s relatively low share in the Russian market and its moderate diversification of operating income, which is characterized by an increase in the share of commission income amid active growth in the volume of issued bank guarantees. The Herfindahl–Hirschman Index, which ACRA uses to assess diversification of operating income, amounted to 0.26 for 2018.
The Bank’s ownership structure is completely transparent, although the degree of connection between the Bank’s operations and the business of its shareholders affected the business profile assessment. The Bank’s strategy assumes growth in consumer lending, development in the guarantee and transfer business in the SME segment, and maintaining its position in the corporate sector.
Weak capital adequacy. As of September 1, 2019, capital adequacy had decreased (N1.1, N1.2=9.19%, N1.0=14.79%) due to a drop in regulatory capital after the bank recorded losses on depreciated assets. As of October 1, 2019, ACRA’s capital stress test, which takes into account the potential losses from devaluated loans and the Bank’s other assets, showed further deterioration (compared to July 1, 2019) in the Bank’s ability to withstand an increase in the cost of risk (more than 300 bps) without violating the minimum values of regulatory standards.
The Bank’s weak ability to generate capital continues to have a negative impact on its capital adequacy assessment; the average capital generation ratio (ACGR) is negative. The net interest margin for the past three years is comparable to other credit organizations (6%). However, the Bank’s operating efficiency is a negative factor; cost to income (CTI) was 78% in the aforementioned period.
The Bank’s critical risk profile assessment is still based on the loan portfolio’s high concentration and low quality. Problem debt, which accounted for around 30% of the loan portfolio as of September 1, 2019, mainly falls on companies in the oil industry and enterprises engaged in mutual operations with them.
ACRA notes the low level of collateral on loans issued by the Bank and coverage of problem debt by reserves.
The Bank’s balance also has significant investments in non-core assets — real estate received via compensation or after foreclosure.
Decrease in liquid assets. The short-term liquidity shortage indicator (STLSI) was positive in ACRA’s base case scenario. ACRA’s stress scenario, however, indicates a shortage level of around 12%. The Bank’s long-term position is adequate; the long-term liquidity shortage indicator (LTLSI) stands at more than 60%.
The Bank’s funding profile is determined by the increased concentration of the top ten groups of creditors (31% of the Bank’s liabilities as of October 1, 2019). The Bank’s resource base is primarily made up of funds from individuals and legal entities (53.6% and 16.7% of liabilities, respectively).
- Maintaining the current shareholder structure.
Potential outlook or rating change factors
The Negative outlook assumes that the rating will most likely be downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Significant increase in the Bank’s capital and capital adequacy;
- Substantial decrease in loan portfolio concentration and problem loans;
- Improved liquidity position.
A negative rating action may be prompted by:
- Critical decrease in capital adequacy;
- The Bank failing to perform its obligations to creditors.
No outstanding issues have been rated.
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups under the National Scale for the Russian Federation and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of Joint Stock Commercial Bank "Interprombank" was published by ACRA for the first time on July 16, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by Joint Stock Commercial Bank "Interprombank", information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of Joint Stock Commercial Bank "Interprombank" and the financial statements of Joint Stock Commercial Bank "Interprombank" drawn up in compliance with Bank of Russia Ordinance № 4927-U dated October 8, 2018. The credit rating is solicited, and Joint Stock Commercial Bank "Interprombank" participated in its assignment.
No material discrepancies between the provided information and the data officially disclosed by Joint Stock Commercial Bank "Interprombank" in its financial statements have been discovered.
ACRA provided additional services to Joint Stock Commercial Bank "Interprombank". No conflicts of interest were discovered in the course of credit rating assignment.